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Can Higher Home Sales Drive D.R. Horton's (DHI) Q4 Earnings?
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D.R. Horton Inc. (DHI - Free Report) is scheduled to report fourth-quarter fiscal 2017 results on Nov 9, before the opening bell.
Recently, the company reduced its fourth-quarter as well as fiscal 2017 forecast due to delays caused by the recent tropical storms. D.R. Horton, one of the top builders in the United States, now expects its backlog conversion rate for the fourth quarter to be approximately 85% compared with the previously guided range of 88-90%. This compares favorably with the year-ago level of 83%.
SG&A (selling, general and administrative) expenses, as a percentage of homebuilding revenues, is now estimated to be roughly 8.6% (versus 8.3-8.4% projected earlier). This also compares favorably with the year-ago level of 8.8%.
Importantly, the company radically trimmed its 2017 forecast for cash flow from operations due to delays caused by the recent catastrophes. D.R. Horton, which primarily sells single-family homes, now anticipates cash flow from operations of about $150 million for the fiscal year, down from the previous forecast of about $300 million.
Meanwhile, rising labor costs are threatening margins of noted homebuilders like D.R. Horton, Lennar Corp. (LEN - Free Report) , KB Home (KBH - Free Report) , PulteGroup Inc. (PHM - Free Report) and Toll Brothers, Inc. (TOL - Free Report) among others.
In fact, D.R. Horton’s gross margin on home sales contracted 50 basis points (bps) year over year to 19.8% in the last reported quarter. Now, storm-related cost pressures are likely to create added pressure in the to-be-reported quarter. The company expects housing gross margin to be around 20%. In the year-ago quarter, it was 20.5%.
Nonetheless, D.R. Horton remains optimistic and expects post-disaster rebuilding efforts to drive higher demands for new homes next year. Although challenges posed as a result of the recent hurricanes are bound to negatively impact its results to some extent in the fourth quarter, D.R. Horton is well poised to gain traction on the current positive housing scenario.
Steady job and wage growth, a recovering economy, historically-low interest/mortgage rates, rising rentals, rapidly increasing household formation and a limited supply of inventory, bode well.
Homebuilding, comprising about 97.6% of total revenues, is expected to get a boost in the fourth quarter. The Zacks Consensus Estimate for Homebuilding revenues of $3.94 billion reflect growth of 6.9% sequentially and 7.9% from the year-ago quarter. On the other hand, consensus estimate for Financial Services revenues of $97 million indicates an increase of 5.4% from the prior quarter and 7.4% year over year.
Overall, for the fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 82 cents per share, reflecting an increase of 9.3% year over year. The Zacks Consensus Estimate for revenues stands at $4.04 billion, implying 8% year-over-year growth.
D.R. Horton does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: D.R. Horton has an Earnings ESP of -2.14%.
Zacks Rank: D.R. Horton carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
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Can Higher Home Sales Drive D.R. Horton's (DHI) Q4 Earnings?
D.R. Horton Inc. (DHI - Free Report) is scheduled to report fourth-quarter fiscal 2017 results on Nov 9, before the opening bell.
Recently, the company reduced its fourth-quarter as well as fiscal 2017 forecast due to delays caused by the recent tropical storms. D.R. Horton, one of the top builders in the United States, now expects its backlog conversion rate for the fourth quarter to be approximately 85% compared with the previously guided range of 88-90%. This compares favorably with the year-ago level of 83%.
SG&A (selling, general and administrative) expenses, as a percentage of homebuilding revenues, is now estimated to be roughly 8.6% (versus 8.3-8.4% projected earlier). This also compares favorably with the year-ago level of 8.8%.
Importantly, the company radically trimmed its 2017 forecast for cash flow from operations due to delays caused by the recent catastrophes. D.R. Horton, which primarily sells single-family homes, now anticipates cash flow from operations of about $150 million for the fiscal year, down from the previous forecast of about $300 million.
Meanwhile, rising labor costs are threatening margins of noted homebuilders like D.R. Horton, Lennar Corp. (LEN - Free Report) , KB Home (KBH - Free Report) , PulteGroup Inc. (PHM - Free Report) and Toll Brothers, Inc. (TOL - Free Report) among others.
In fact, D.R. Horton’s gross margin on home sales contracted 50 basis points (bps) year over year to 19.8% in the last reported quarter. Now, storm-related cost pressures are likely to create added pressure in the to-be-reported quarter. The company expects housing gross margin to be around 20%. In the year-ago quarter, it was 20.5%.
Nonetheless, D.R. Horton remains optimistic and expects post-disaster rebuilding efforts to drive higher demands for new homes next year. Although challenges posed as a result of the recent hurricanes are bound to negatively impact its results to some extent in the fourth quarter, D.R. Horton is well poised to gain traction on the current positive housing scenario.
Steady job and wage growth, a recovering economy, historically-low interest/mortgage rates, rising rentals, rapidly increasing household formation and a limited supply of inventory, bode well.
Homebuilding, comprising about 97.6% of total revenues, is expected to get a boost in the fourth quarter. The Zacks Consensus Estimate for Homebuilding revenues of $3.94 billion reflect growth of 6.9% sequentially and 7.9% from the year-ago quarter. On the other hand, consensus estimate for Financial Services revenues of $97 million indicates an increase of 5.4% from the prior quarter and 7.4% year over year.
Overall, for the fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 82 cents per share, reflecting an increase of 9.3% year over year. The Zacks Consensus Estimate for revenues stands at $4.04 billion, implying 8% year-over-year growth.
D.R. Horton, Inc. Price and EPS Surprise
D.R. Horton, Inc. Price and EPS Surprise | D.R. Horton, Inc. Quote
Here is what our quantitative model predicts:
D.R. Horton does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: D.R. Horton has an Earnings ESP of -2.14%.
Zacks Rank: D.R. Horton carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
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